Ackman accuses Herbalife of breaking laws in China

Tue Mar 11, 2014 6:26pm EDT
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By Svea Herbst-Bayliss

BOSTON (Reuters) - Billionaire investor William Ackman renewed his attack on Herbalife on Tuesday, saying he has evidence showing the nutrition and weight loss company is breaking direct-selling laws in China, its fastest growing market.

The company said it follows local laws, and Chinese regulators have yet to comment on the matter.

Ackman, who has placed a $1 billion short bet against Herbalife, said the company is breaking the law in China by making recruits pay an entry fee and by letting distributors recruit new members. He also said the company is disguising its sales to distributors as hourly consulting fees.

He made the claim on a conference call that lasted more than two hours and drew some 300 listeners.

He was joined on the call by one of his lawyers, David Klafter, and Aaron Smith-Levin, whose OTG research firm conducted interviews with Herbalife distributors in China, and Ben Hakim, one of his partners.

"My understanding of the facts and law in China is yes, they are violating both civil and criminal law" in China, Klafter, a senior counsel at Ackman's hedge fund Pershing Square Capital Management, said on the conference call.

Ackman and his team said this presentation is a first step toward bringing Pershing Square's concerns to the attention of Chinese officials.

Herbalife said sales in China rose more than 120 percent in the fourth quarter of 2013, the fastest of any region worldwide, contributing about 10 percent to global sales last year. The company has 200,000 sales representatives in the country and uses a "unique marketing program" to meet Chinese regulations, it said in its latest annual report.   Continued...

William Ackman, Chief Executive Officer of Pershing Square Capital Management LP talks to reporters before entering the AGM of Canadian Pacific Railway Ltd. in Calgary May 17, 2012. REUTERS/Jack Cusano